Standard Chartered Rises on Settlement of New York Probe

By Howard Mustoe -
Aug 15, 2012

Standard Chartered Plc (STAN) rose as much
as 5.1 percent in London after the bank settled a money-
laundering probe for $340 million the day before it was due to
appear at a hearing to defend its right to operate in New York.

The stock climbed 70 pence to 1,440 pence and was up 4.7
percent to 1,435 pence at 12:05 p.m. for a market value of about
34 billion pounds ($53 billion). The stock is still about 8
percent below its closing price on Aug. 3, the last day of
trading before the probe was announced.

Benjamin Lawsky, head of the New York Department of
Financial Services (HIG) accused Standard Chartered of helping Iran
launder about $250 billion in violation of federal laws,
threatening to remove the London-based bank’s license to operate
in the state. That would have hurt Standard Chartered’s ability
to process dollar payments for clients in Asia and reduced
earnings by about 40 percent, according to Chirantan Barua, an
analyst at Sanford Bernstein Research in London.

“Crucially, the settlement eliminates the risk of Standard
Chartered losing its banking and clearing license,” Shailesh Raikundlia, an analyst at Espirito Santo Investment Bank in
London, wrote in a note to clients today. That “would have
significantly impaired their wholesale banking operations,
especially transaction banking and trade finance.”

Federal Probes

The bank still faces federal probes over allegations it
helped Iran funnel money through the U.S. Regulators including
the U.S. Treasury, the Federal Reserve Bank, the Justice
Department and the Manhattan District Attorney declined attempts
at a global settlement, a person familiar with the matter said
yesterday. September will be the earliest such a global deal is
possible, said the person, who declined to be identified because
the matter is private.

The bank could pay as much as $1 billion in fines as it
settles with other regulators, according to Simon Morris, a
regulatory lawyer at CMS Cameron McKenna in London.

“The implication for Standard Chartered is they have a
truce on one battle but four more to fight” with other
regulators, he said in an interview on Bloomberg Television
today.

A person familiar with the New York probe said Lawsky had
sought as much as $700 million to settle the investigation. The
cost of settling with all the regulators may be about $700
million, Cormac Leech, an analyst at Liberum Capital wrote in a
note to investors today.

‘Rogue Institution’

“The willingness of the DFS to accept a $340 million
settlement sits oddly with its classification, a week earlier,
of Standard Chartered as a ‘rogue institution’ at risk of NY
license revocation,” wrote Leech who has a buy rating on the
stock. “Standard Chartered is now likely to suffer minimal
reputational damage with minimal risk of management
resignations.”

The quick resolution of the probe was in the best interests
of shareholders, clients and employees, Chief Executive Officer
Peter Sands said in an internal memo today.

“Our past review did identify mistakes, for which we have
apologized,” Sands told employees today, without elaborating on
the specific errors, according to the document obtained by
Bloomberg News. “There are many reasons why firms settle such
agreements,” Sands said. “We have sought to act in the best
interests of our shareholders, clients, customers and staff.”

The lender is in talks with the other agencies, Sands said
in the note. Melissa Cheah, a Singapore-based spokeswoman for
the lender, confirmed that Sands sent a memo to staff.

Material Fines

“We would expect the other regulators to settle in due
course, and the fines may be material, but we think the
aggregate cost will be below $1 billion,” analysts led by Amit Goel at Credit Suisse Group AG wrote in a note to clients.

Standard Chartered is the latest bank to be fined over
money laundering-related issues.

ING Groep NV, the biggest Dutch financial-services company,
in June agreed to pay $619 million to settle U.S. charges it
falsified financial records to bypass sanctions on countries
including Cuba and Iran.

HSBC Holdings Plc, Europe’s largest bank, made a $700
million provision last month for U.S. fines after a Senate
committee found the bank gave terrorists, drug cartels and
criminals access to the U.S. financial system. That sum may
increase, CEO Stuart Gulliver said.

“Standard Chartered has acted with pragmatism and
integrity in the face of extreme provocation,” Ian Gordon, a
London-based analyst at Investec Plc (INVP), wrote in a note to clients
today.